One of the most important ways to set your new business up for success is to ensure you have a solid budget plan keeping your company’s finances in line.
Many new business owners find the financial components of running a company to be daunting. In the early days of a start-up, it can seem like the costs simply keep adding up – beyond your original estimations.
Creating a business budget is one of the main ways to keep on top of your expenses and can help you in several other ways for your business operations and planning future growth.
This article explains what a business budget is, what the key components are in a successful plan and our top tips for you when it comes to preparing a plan of your own.
What is a business budget?
A business budget is a comprehensive and thorough plan that details how much money you need for your business’ operations and in which areas that money is spent monthly, quarterly or annually.
Your business budget gives you – and any potential investors – an idea of what is needed for the business to be successful. It’s also a vital tool to shore up your cashflow projections, plan future developments and take on new employees.
An efficient and well thought out business budget can help you to:
- Make sound financial decisions;
- Forecast the money you expect to earn;
- Identify cost-cutting areas or under-tapped revenue streams;
- Obtain capital funding to invest into your business; and
- Make comparisons between your targets and their execution.
What does a good budget include?
Your estimated revenue
The total amount that you believe you are likely to make in a particular period, without any expenses or costs deducted.
Your fixed costs
These are the regular and recurring expenses you are likely to pay for, such as rent/mortgage, utility bills, accounting, office supplies, salaried employees, website hosting, etc.
Your variable costs
These costs vary depending on your production or volume of sales. They may include expenses such as production costs, shipping/packaging costs, travel costs and additional labour costs.
Your one-off costs
These are expenses you do not expect to have on a regular basis and realistically expect to be a single-time cost. This may include purchases for new machinery, software, office equipment or furniture.
This is the amount of actual cash coming in and out of your business over a set period.
Profit is the amount of money you take home after deducting all your costs and expenses. In your budget, you should include how much profit you plan to make based on your margins.
Do your research!
Every business and market has its nuances and it’s crucial to do your due diligence when it comes to finding out your industry’s benchmarks.
Do first-hand and secondary research into your competitors and other businesses in the broader market to get an idea of what you can estimate your figures to be.
As small businesses are most likely to be affected by industry-wide issues, it’s essential to get a real grasp of your space and how your business will operate within.
Create digital records and spreadsheets
Using the critical components of a business budget (listed above), create a spreadsheet with a row for each one and a column for your projections or targets.
At the end of your set period, add an extra column with your actual figures, so you can see how the business has fared in comparison to your plans.
It may also be helpful to include estimations of the percentage of your revenue you expect to allocate to each area, which you can tweak accordingly ahead of your next budgeting period.
Don’t under-estimate costs or over-estimate revenue
A business budget is only adequate if it is realistic and highly considered. While you may believe that your business can generate a particular volume of sales, these are just estimates until you have your actual figures at hand.
The same goes for expenses you believe to be fixed or manageable. You may find reality doesn’t match up with your original estimates and your costs are far greater than initially anticipated. It’s best to give yourself some wriggle room by erring on the side of caution with your figures and assume realistic projections rather than ones too highly optimistic.
It’s always better to have more money coming in than what your original plan envisaged, as you would have planned for a less favourable return and you can allocate the surplus money to the right area to further your business’ growth.
Plan & cut costs if needed
If you forecast into the near future, you may find you have an expensive lease renewal or big bills to be paid that you hadn’t first factored in.
You should consider cost-cutting in advance in that scenario, especially with expenses primarily in your control, such as advertising or marketing costs.
Let Cue Talent Advisory help
At Cue Talent Advisory, we handle all affairs business, management & lifestyle for individuals, businesses, and overseas clients in a variety of sectors.
Our expert team is dedicated to providing trustworthy and insightful guidance to ensure you, as a business owner, are on the right path to success.